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94 2d Se?sfon SS } COMMITTEE PRINT 

Cost and Utilization Control 

Mechanisms in Several 

European Health Care Systems 

Report by the Staff to the 


Russell B. Long, Chairman 


Is MAR ^ 7P 5 

Printed for the use of the Committee on Finance 

64-731 WASHINGTON : 1976 

For sale by the Superintendent of Documents, U.S. Government Printing Office 
Washington. D.C. 20402 - Price 35 cents 


RUSSELL B. LONG, Louisiana, Chairman 

HARRY F. BYRD, Jr., Virginia 

CARL T. CURTIS, Nebraska 
PAUL J. FANNIN, Arizona 
WILLIAM V. ROTH, Jr., Delaware 
BILL BROCK, Tennessee 

Michael Stern, Staff Director 

Donald V. Moorehead, Chief Minority Counsel 



Many books and articles have been written describing the health 
care financing S} r btems in various European countries. It was neither 
the assigned task nor the staff's intent to produce yet another descrip- 
tion or summary of European health delivery S3 T stems. Rather, the 
intent was to take a more focused look at some specific aspects of a 
few European health care financing systems in areas of common 

Perhaps the major problem faced by the Congress in dealing with 
governmental health care financing in the United States, is the prob- 
lem of structuring appropriate, equitable and workable cost and 
quality control mechanisms. The intent of the staff visit was to learn 
as much as possible in a relatively brief period of time about the 
cost and quality control provisions in selected European financing sys- 
tems. We certainly do not pretend to have become expert in this period 
of time on these aspects of those systems, nor do we intend in any way 
to pass judgment upon steps taken or not taken in the various countries 

A word about the countries visited. The staff was requested to visit 
England and West Germany because the Chairman and Senator 
Ribicoff were to be in those countries and were interested in learning 
more about the health financing systems in the countries they visited. 
The Netherlands was added to the itinerary primarily because a num- 
ber of knowledgeable previous visitors from the United States advised 
that the Dutch system contained features worthy of study. 

The first section of this report consists of a brief overview of certain 
salient characteristics of the health care financing s^'stems in West 
Germany, the Netherlands and England. We do not outline all features 
of those systems in detail as the material is readily available elsewhere. 
The body of the report consists of observations with respect to each 
country in three subject areas: Hospital Reimbursement, Physician 
Reimbursement, and Utilization and Quality Control. 


Digitized by the Internet Archive 
in 2013 



Preface iii 

Introduction 1 

Individuals and organizations visited by staff 1 

Overview 2 

Hospital reimbursement 4 

Physician reimbursement 6 

Hospital and physician utilization controls 8 


Finance Committee Staff Report on 

Cost and Utilization Control Mechanisms in Several European 

Health Care Systems 


During the month of August, 1975 Mr. Jay Constantine and Dr. 
James Mongan of the Finance Committee staff visited several Euro- 
pean countries in conjunction with the visit to Europe of Senators 
Long and Eibicoff. The primary mission of the Senators' visit was to 
study the international economic situation. However, due to the fact 
that the Finance Committee has jurisdiction over Medicare and Medi- 
caid and any future National Health Insurance programs, the Sena- 
tors believed it would be valuable for them, in conjunction with their 
visit, to arrange a few brief meetings with people experienced with 
health financing programs, while in Europe, so as to gain information 
with respect to the European health care financing programs. 

Recognizing that the time which they could devote to the study of 
European health systems on this visit was limited, the Senators asked 
Mr. Constantine and Dr. Mongan to arrange these brief meetings and, 
also, to spend additional time in selected countries, visiting with ap- 
propriate health care officials seeking further background information 
which might prove of value in the Committee's ongoing work with 
respect to the U.S. health care programs. What follows is a report of 
the staff visit. 


Germany — August 13-15, 1975 

Ministerialrat Harsdorf, Regierungsdirektorin Schneider, and 

Dr. Bernd Liese — Bundesministerium fuer Jugend, Familie und 

Ltd. Ministerialrat Gottfried Friedrich, Ministerium fuer Arbeit, 

Gesundheit and Soziales. 
Professor Dr. Hans-Werner Mueller, Deutsche Krankenhausge- 

Dr. Odenback, et al. — Bundesaerztekammer, Koeln, Haeden- 

Dr. Adolf Frhr. Von Haaren, Director, Evangelisches Kranken- 

Frau Merte Bosch, Geschaftsfuhrer Im, Verbank Der Arzte 



Netherlands — August 18, 1975 

W. B. Gerritsen M.D., et al., Director-general, Ministry of Public 

and Environmental Health. 
J. Dipersloot, M.D., Secretary-general, Royal Dutch Medical 

Association, Albert van der Werff, M.D., and J. C. M. Hattinga 

Verschure, M.D. 

England— August 19-22, 1975 

Dr. Forbes and Mr. Weeple, Department of Health and Social 

John Winn Owen, et al., Administrator, St. Thomas Hospital. 
Geoffrey Phalp, Secretary, King Edward's Hospital Fund for 

Gordon McClachen, Nuffield Provincial Hospitals Trust. 
Oliver J. Rowell, General Manager, Nuffield Nursing Homes 



1. Perhaps most important, from the perspective of this report, is 
the fact that, as in the United States, health costs are rising at rates 
faster than the general cost-of-living in each of the three countries we 
visited. This basic fact is as much a matter of serious concern in each 
of those countries as it is in the United States. Additionally, the dis- 
proportionate rates of increase in health costs is leading — in all of the 
countries visited — to intensive discussion among those charged with 
formulating health policy of various means of controlling the costs 
and utilization of health services. 

This issue assumes added importance at a time when the gross na- 
tional products of the countries are failing to grow as rapidly, and on 
as sustained a basis, as in the past. 

2. In general, each of the countries visited seems to have gone 
further than we have in the United States with respect to applying 
Governmental controls over the unit costs of hospital and medical 
services. For example, where physicians are paid on a fee-for- 
service basis, a fee schedule with specified allowances is generally 
utilized ; and, in the area of hospital reimbursement, prospective per 
diem payment is generally employed in contrast to the retrospective 
cost-based method of payment usual in this country. 

In addition, each of the countries visited has gone further than 
the United States with respect to the imposition of controls on hos- 
pital capital expenditures. Unlike the situation in the United States 
where capital costs are included as a part of reimbursement formulas 
(in the form of depreciation and interest on debt), in these European 
countries capital costs are considered separately from the general hos- 
pital reimbursement mechanism. 

In the area of utilization and quality controls, the countries visited 
appear to have taken a different path than has the United States. In 
each of the countries the necessity of a hospital admission is scruti- 
nized in nearly every cast 1 by at least two physicians since, in general, 
a non-hospital based physician refers a patient for admittance and the 
admission is actually authorized by a hospital-based physician. Be- 
yond this "structural" review of the necessity of admissions, there 

is little formal utilization review activity. However, in each country, 
there was substantial interest in establishing more effective review 
mechanisms. In this regard, we were questioned extensively concerning 
the Professional Standards Review Legislation currently being imple- 
mented in the United States. 

3. Hospitals in the countries we visited tend to differ from hospitals 
in the United States, in that they deliver, in addition to acute care, 
more long-term care than is ordinarily rendered in American hos- 
pitals. This general fact is reflected statistically. The average length 
of stay in hospitals in Europe is considerably longer than in United 
States hospitals. There are a number of reasons for these longer 
lengths of stay including a lack of sufficient long-term care beds 
outside of hospitals and different cultural mores, such as the ex- 
pectation that maternity stays should average 10 or 11 days. An- 
other statistic illustrating different patterns in European hospitals 
concerns staffing ratios. Roughly, the hospitals in West Germany have 
a ratio of one employee for each bed, in the Netherlands 1.5 employees 
per bed and in England 2 employees per bed, whereas in the United 
States, the national ratio is well over three employees per bed. The 
extent to which these personnel ratios reflect the difference in patients 
served and the extent to which they reflect superior efficiency in the 
European hospitals is a matter worthy of further study. 

4. The West German health financing system is based upon a social 
insurance model in which numerous sick funds, financed by employer 
and employee contributions, reimburse for hospital and" physician 
services. Hospitals are generally reimbursed on a prospective rate 
basis modified by a series of retrospective adjustments. Generally, the 
hospitals, all of which are non-profit, are owned and operated by 
local governmental units and religious institutions rather than the 
German Federal or State governments. 

Physicians in West Germany are either salaried employees of hos- 
pitals or else work outside of hospitals on a fee-for-service payment 
basis. Out of hospital physicians generally do not have the right to 
treat their patients in a hospital. 

As the above outline indicates, the West German health system bears 
some similarities to our own — the sick funds are somewhat analogous 
to our Blue Cross or private health insurance plans, many phy sicians 
are paid on a fee-for-service basis, and the majority of hospitals are 
not government ally owned or operated. 

5. Each of the above genera] statements with respect to the West 
German health financing system holds generally for the system in the 
Netherlands ; thus the Dutch system is also similar to our system in 
the United States. One major difference between the West German 
and Dutch systems is that in West Germany the level of government 
primarily responsible for health financing is the State whereas, in the 
Netherlands, the s}<stem is a national system. Another difference is 
that the social insurance funds in the Netherlands cover only about 
70 percent of the population, while the remaining 80 percent (gen- 
erally upper income) are privately insured. Yet another difference is 
that "Dutch hospitals provide a substantial amount of out-patient care 
in contrast to West German hospitals where such care is almost 

6. In Britain the health financing system is markedly different 
from the system which we have in the United States. Rather than 
being- an insurance-based system, the British Government operates 
a national health service, based upon a total budget. 1 funded largely 
out of general revenues, which is responsible for providing health care 
to all citizens without respect to insured status. 

As a consequence of this fundamental difference, hospitals are op- 
erated on an annual overall budget directly by governmental bodies 
rather than being reimbursed under any kind of prospective or retro- 
spective per diem formula. Similarly, in hospital physicians are gen- 
erally salaried employees of the health service. Outside of the hospital, 
general practitioners are ordinarily compensated on a fixed capitation 

Because of the fundamental difference between the British system 
and our own, few individual elements of the British system would 
seem to be transferable to the United States. For example, there is 
little to be learned in Britain on mechanisms of controlling fee-for- 
service payment to physicians since the overwhelming proportion of 
British physicians are not paid on a fee-for-service basis. 

The above is in no way intended to pass judgment upon the British 
system, but merely to state that the technical and philosophic prob- 
lems which they face in controlling health costs, due to the nature of 
their system, are in large part different from those problems which 
we face. 


West Germany. — Generally, hospitals in West Germany are reim- 
bursed according to a negotiated prospective per diem rate. The rates 
are negotiated between the sick funds and the hospitals in an area, with 
the State government mediating the negotiations. ' The negotiations 
are generally based upon an examination of the costs involved in pro- 
viding care and while a hospital classification system is used, it basi- 
cally takes only bed size into account. The hospitals are not required 
to prepare specific detailed yearly budgets although, in a sense, such 
budgets are necessary since hospitals can apply for retrospective rate 
adjustments which must be justified by budgetary figures. The laws 
calling for prospective cost-based reimbursement are relatively new 
and. prior to 1974. reimbursement was apparently not as tightly con- 
trolled, with yearly deficits merely being subsidized by local govern- 
mental units. A hospital enjoying a surplus of revenues as a result of 
the prospective rate generally receives a reduced rate in the following 
year. This does not appear to offer much incentive to hospitals to have 
unexpended funds at the end of a year. 

representatives of the West German Hospital Association pointed 
out to us that one effect of the new law calling for the establishment of 
prospective rates has been to further focus public attention and con- 
cern on hospital per diem costs. They also made the point that an 
improved and more sophisticated hospital classification system would 
be desirable in negotiating the prospective rates. 

1 The total budget approach to nil health care provided under the National Health 
Rervlce provides Interesting and sisnfiicnnt contrast with the line item budget approach 
in the T'nitcd States. In Orcat P.ritain the lack of identifiable items allocable to specific 
health a reap and activities has the effect, anions others, of inhibiting the abilitv of the 
various health care interests to advocate increases or other changes in their specific areas 
of concern. 

Reimbursement for hospitals' capital expenditures is handled sep- 
arately from the prospective hospital operating costs reimbursement 
system. Basically, each State has a pool of capital funds and decisions 
on the allocation of these funds are made under a State plan for 
hospital construction. Generally, in most areas of West Germany, the 
stated public policy is not to build additional hospital beds but, 
lather, to apply capital to the modernization or conversion of exist- 
ing' hospital beds. The West Germans face problems similar to those in 
the United States and Canada in seeking to close down excess bed 
capacity in small hospitals in more sparsely populated areas. There, 
local political pressures — including community pride and the hospital 
as an employer — inhibit control efforts. In instances, the problem is 
resolved via compromise such as conversion of the hospital to what 
would be a skilled nursing home here. 

Again, the system for the distribution of hospital capital funds is 
relatively new and some representatives of West German medical 
organizations pointed out that they felt there may be too many politi- 
cal influences in the capital allocation process. These representatives 
went on to say that, although, theoretically the State plan for capital 
expenditures would address and control the building of various spe- 
cialty units, that control is still somewhat theoretical and not entirely 

Netherlands. — Again, in the Netherlands, hospitals are basically 
reimbursed according to a prospective rate based upon the cost of 
providing care. Again, hospitals are classified for purposes of estab- 
lishing the rate, but only by bed size. 

Hospitals must prepare budgets and the budget is compared against 
established national guidelines which contain, for example, highly de- 
tailed and specific indexes of the number of hospital personnel allowed 
per patient day and the costs acceptable based upon the training and 
experience of each of the various personnel. These guidelines are 
available to hospital administrators and the administrators are, there- 
fore, aware of the limits placed upon them as they operate through 
the year. 

With respect to capital reimbursement, there is a general policy in 
the Netherlands that no new hospitals may be built. In addition to 
this, hospitals must seek Government permission to rebuild, and the 
Government sets acceptable figures for the number of beds to be re- 
built and the acceptable capital cost per bed. Capital is then generally 
obtained privately and the Government pays a depreciation amount. 
The Government has established planning criteria for the number of 
beds which ideally would be available in each area of the country. 

Britain. — In Britain, national health service hospitals basically re- 
ceive, through allocation by the central government to regions, a lump 
sum budget amount based upon costs during the prior year, plus an 
additional allowance for inflation and, perhaps changes in services. The 
budget is examined with general focus on the margin of increase over 
the previous year. The budget may be altered due to a change in cir- 
cumstances (such as general salary increases) : so. in a sense, the budget 
ceiling is not really an upper limit on expenditures. However, leaving 
aside obvious factors such as salary increases, hospital administrations 
which consistently fail to meet their budgets may be replaced. 

Capital expenditures are handled through a separate pool of health 
service funds with small capital improvements being funded by a 
regional fund and large building projects being handled at the 
national level. 

General Discussion. — As the above paragraphs indicate, each of 
the countries visited seems to have gone beyond the system in our 
country where hospitals are generally reimbursed for their reason- 
able costs on a retrospective basis under Medicare, Medicaid and Blue 
Cross, and on a charge basis under private health insurance, 
and where capital associated costs are generally included within the 
overall per diem charge. There has, however, been action at the State 
level in many States toward establishing a rate-setting process so as to 
bring elements of prospective reimbursement into our system. Addi- 
tionally, there has been some movement toward a prospective pay- 
ment mechanism under Medicare in the form of a number of 
demonstration programs. 

On the capital expenditures side, local health planning agencies 
have been established in the United States which are charged with 
reviewing the necessity of capital expenditures ; more recently. States 
have been mandated to establish certain certification of need pro- 
grams which, in a sense, will have final authority over deciding 
whether a given hospital can make substantial capital expenditures. 
Thus far, we have not separated capital expenditures from general 
hospital reimbursement, and we have not established statewide pools 
of capital. 


West Germany. — Roughly 50 percent of the physicians in "West Ger- 
many are full-time salaried employees of hospitals (although a number 
of these physicians do maintain fee-for-service private practice in their 
free time) . The remaining 50 percent — a large proportion of whom are 
general practitioners — practice out-of-hospital and are reimbursed on 
a fee-for-service basis. It is the reimbursement of this latter group 
which was of most interest to us. Basically, each of the many sick funds 
annually negotiates an amount of money which will be available for 
physicians' fees in an area with the sick fund physicians association. 
The sick fund physicians construct a type of fee schedule or relative 
value scale to divide the funds among physicians in an area. Dif- 
ferent social insurance funds may have different fee schedules but the 
differences are generally minor. Though negotiations are held annu- 
ally on the funds available for physician fees apparently both parties 
assume at the beginning of the negotiations that increases in funds will 
be generally linked to any general inflation in the economy. Conse- 
quently, these negotiations apparently rarely lead to bitter disputes. 
The physicians association generally makes only minor changes in 
fees among specific procedures. The fee schedules do not contain any 
rural-urban payment differential although rural physicians often re- 
ceive bonuses and income guarantees from the community. Similarly, 
with respect to specific services and procedures, the fee schedules do not 
contain differentials in payments to specialists as opposed to general 
practitioners. However, there arc 4 numerous specialized procedures U)Y 
which general practitioners will not be reimbursed. 

Netherlands. — In the Netherlands about one-half of the practicing 
physicians are general practitioners. These general practitioners are 
paid on a capitation basis for the roughly 70 percent of patients who 
are covered by the sick funds. For the remaining 30 percent of patients 
who are covered by private insurance, general practitioners are paid 
on a fee-for-service basis. The other 50 percent of practicing phy- 
sicians are specialists who are reimbursed by both the sick funds 
and private health insurance on a fee-for-service basis. Again, as in 
West Germany, fees are negotiated annually by the boards of 
the sick funds and private insurance companies and the physicians' 
organizations. In the case of the social insurance funds, negotiated 
changes may be vetoed by the Health Minister and a new rate set, al- 
though this authority has never been exercised. With respect to the 
fees negotiated by the private insurors, approval of the Economic 
Minister is required and again is generally granted. It may be assumed 
that the authority of the Health and Economics Ministers to disap- 
prove results of these negotiations, while not in fact exercised, do ex- 
plicitly influence the negotiators during the course of their work. The 
fees negotiated by the private insurors are generally linked to the fee^ 
negotiated by the social insurance fund, though they are somewhat 
higher. The gap between the private and public fees has narrowed in 
recent years. Also, as in West Germany, the annual negotiations gen- 
erally result in an across-the-board percentage increase closely linked 
to the general increase in the cost of living. Urban, rural, or specialty 
fee differentials are not general. 

Great Britain. — In Britain the vast majority of physicians are reim- 
bursed for most of their professional efforts on a salaried or capitated 
basis through the national health service. We did not explore in detail 
how these salaries or capitation rates are established or their reason- 

General Discussion. — Both countries visited which employed the 
fee-for-service reimbursement mechanism in a broad sense — West Ger- 
many and the Netherlands — have gone beyond any steps taken in the 
United States with respect to controlling individual physicians' fees. 
These countries utilize an annually negotiated fee schedule. In the 
United States, the Medicare, many Medicaid programs, and most pri- 
vate insurance plans, have since enactment of Medicare, sharply de- 
parted from the use of fee schedules which had, previous to Medicare, 
been prevalent under basic Blue Shield and private health insurance. 
Instead, during the past ten years, reimbursement of doctors has been 
related to the concept of paying a doctor's customary charge up to 
a limit represented by the prevailing physicians' charges for that serv- 
ice in the locality. Generally, in both the private and public sectors of 
the United States, there have been few effective limitations on the 
extent to which these customary and prevailing charges could be in- 
creased from year to year. A recent Medicare amendment does, how- 
ever, seek to limit acceptable increases in prevailing physicians' charges 
from year to year. The statutory limitation relates allowable increases 
to changes in the costs of practice and earnings levels- in an area. 

Aside from the stricter limitation on fees in Germany and the 
Netherlands, the use of a fee schedule also results in generally uniform 
reimbursement for a specific service in those countries whereas, in the 


United States, the variation between the prevailing charges from one 
area to another and between specialists and nonspecialists can be quite 

It should be noted that none of these reimbursement limitations — 
negotiated or otherwise — adjust for general changes in the mix or 
frequency of given medical services from year-to-year. The cost of 
such changes may equal or exceed the impact of economic index 

An impressive conclusion from our discussions in West Germany 
and the Netherlands was the reasonably rational nature of the relation- 
ship and continuing dialogue between physicians, government, and 
other third parties. Obviously, strongly held views obtain but we 
would characterize the relationships between the parties as much more 
harmonious than acrimonious. 


West Germany. — Aside from the previously mentioned fact that 
almost all hospital admissions occur after the patient has been seen by 
two plrysicians — his own physician and the hospital physician — there 
is little formal utilization review in German hospitals. A number of 
the hospitals have review committees of one sort or another, but we 
were told that these were not considered particularly effective. In ad- 
dition, the social insurance funds monitor hospital utilization but with 
little intervention. 

In the case of ambulatory services provided by physicians, the social 
insurance funds do maintain overall statistical figures with respect to 
various physicians. However, review is minimal and is generally 
limited to those cases where a physician's practice — usually based upon 
financial volume — appears grossly out of line with that of his col- 
leagues. The best estimate we could get was that less than 1 percent of 
claims are questioned with respect to possible inappropriate utilization. 

Xetherlands. — In the Netherlands, as in "West Germany, most pa- 
tients are seen by tAvo physicians before being hospitalized. Again, as 
in TTest Germany, beyond this there is little utilization review. There 
is a theoretical mechanism for utilization review through the employ- 
ment of control or review physicians by the social insurance funds but. 
in general, we were told that this review is pro forma. The Dutch, 
however, are beginning to develop aggregate statistical data on utiliza- 
tion in various hospitals in an attempt to strengthen their review 

With respect to ambulatory services provided by physicians, there 
is also little actual review, although the social insurance control phy- 
sician mechanism exists here also. In the outpatient area also, the 
Dutch are beginning to maintain statistical data which they believe 
will allow more effective review. 

Great Britain. — As with some of the reimbursement issues discussed 
above, many questions on utilization review are not really pertinent to 
the British system. Questions of quality review are relevant there, as in 
any other country but, focusing on the issue of utilization control 
alone, there would be little reason in a system such as the British sys- 
tem to develop complex review mechanisms since the financial in- 
centive for both the physician and the hospital is, if anything, to 

underutilize rather than overutilize. Consequently, there has been 
little pressure for the development of utilization review activities. 

General Discussion. — It would appear that, generally, in the two 
countries Ave visited — West Germany and the Netherlands — where 
questions about utilization control and review activities were appli- 
cable, these activities were not highly developed. The basic mechanism 
for justifying a hospital admission was the admitting hospital staff 
physician. Beyond this, there was little formal review. 

In the United States the situation is somewhat different. In this 
country there is no similar sharp division between hospital physicians 
and out-of -hospital physicians — rather, physicians care for their pa- 
tients while they are hospitalized and while they are out of the hos- 
pital. This feature of the United States health care system is probably 
advantageous and, in fact, we found efforts in each of the countries 
visited to improve the continuity of patient care rather than have pa- 
tients split among physicians. 

In the United States, hospital admissions have not traditionally 
been subject to automatic review by other physicians. We have, how- 
ever, had in this country hospital utilization review committees which 
have operated with varying degrees of effectiveness. Recent legislation 
authorized the establishment of Professional Standards Review Orga- 
nizations composed of physicians in each area, who are charged with 
reviewing the utilization and quality of services provided. Although 
not fully implemented, these organizations would appear to be more 
substantial, where they function, than the rudimentary review com- 
mittees which exist in the countries visited. 



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